Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: Well, Elon Musk is now the richest person on the planet.
Speaker 3: More than half the satellites in space are owned and
Speaker 3: controlled by one man.
Speaker 1: Well, he's a legitimate super genius.
Speaker 4: I mean legitimate.
Speaker 5: He says he's always voted for Democrats, but this year
Speaker 5: it will be different.
Speaker 1: He'll vote Republican.
Speaker 6: There is a reason the US government is so reliant
Speaker 6: on him.
Speaker 7: Alon Musk is a scam artist and he's done nothing.
Speaker 3: Anything he does, he's fascinating people. Welcome to Eylan Ink,
Speaker 3: Bloomberg's weekly podcast about Elon Musk. It's Tuesday, January twenty eighth.
Speaker 3: I'm your host, David Papadopolis. It's Tesla Earnings Week, people,
Speaker 3: which means, of course, earnings bingo. You know that, get
Speaker 3: out your popcorn. But it'll also give us a fresh
Speaker 3: window into the financials of a company that is absolutely
Speaker 3: taken off in the stock market since Trump's selection. So
Speaker 3: the question is are the fundamentals catching up to these
Speaker 3: growing expectations of what Tesla can be in the Trump
Speaker 3: era or are they falling further behind. We'll dive into
Speaker 3: those numbers with our regulars here, Max Chafkin and Dana Hull.
Speaker 3: Hello to you both.
Speaker 2: Happy almost earnings day, David, and.
Speaker 3: Happy earnings day to you Max. Dana, Hello, Hello, Hello,
Speaker 3: and we have our global autos are beaming in from London.
Speaker 3: Craig Trudell. Craig, Hello, sir.
Speaker 7: Thanks for having me.
Speaker 3: Then we're going to talk about Muskin is Wall Street
Speaker 3: bankers who suddenly and finally see an opportunity to unload
Speaker 3: the thirteen billion dollars of loans they doled out the
Speaker 3: finance's purchase of Twitter. After two years, the stars seem
Speaker 3: a ligne to make a sale happen, unless that is
Speaker 3: the out of the blue emergence of deep seek scuttles
Speaker 3: the whole thing. We'll talk about all that with one
Speaker 3: of our top Wall Street reporters, Shredar Naderjan Okay, Dan,
Speaker 3: I start with you, though tomorrow is Tesla earnings Day.
Speaker 3: Remind us what we know so far in terms of
Speaker 3: how the fourth quarter went for Tesla and what you're
Speaker 3: going to be looking for the most in the numbers
Speaker 3: that come out and in the conference call that follows
Speaker 3: the release.
Speaker 1: So Tesla earnings, we know how many cars the company
Speaker 1: delivered in the fourth quarter. We know that for the year,
Speaker 1: sales were down roughly one percent, and so the big
Speaker 1: thing for earnings is the growth outlook, And you know,
Speaker 1: Elon Musk is going to do whatever he can to
Speaker 1: kind of take control of the narrative and promise Wall
Speaker 1: Street that everything is great, that they are making progress
Speaker 1: with FSD, that the Model Y Refresh is happening, And
Speaker 1: this is going to be the first call since Donald
Speaker 1: Trump was elected, and so I expect there's going to
Speaker 1: be a lot of questions about Doge, about tariffs, about
Speaker 1: you know, is Tesla ever going to build a Mexico
Speaker 1: plan or not, And so it's really more about the
Speaker 1: call than the numbers itself.
Speaker 3: Right by the way, just for the record, my bet
Speaker 3: on the Mexico plant is we never see that, at
Speaker 3: least not over the next four years. Craig Danna mentions
Speaker 3: the Model Why Refresh, which reminds me, I don't know
Speaker 3: that we've talked about it on this show. Tell us
Speaker 3: a bit about it and how high expectations are for
Speaker 3: it in terms of driving sales of Tesla's top model.
Speaker 7: So I guess the first thing to start with is
Speaker 7: the look of it on the exterior. It's got a
Speaker 7: sort of cyber truck like face. It's got a light
Speaker 7: bar running across the front, very similar to the cyber truck. Otherwise,
Speaker 7: there's honestly not that much to say about it. I mean,
Speaker 7: there's in the rear seat you now have a screen,
Speaker 7: you know, along with the screen that you know, folks
Speaker 7: are used to up in the front row. There's some
Speaker 7: interior changes in terms of, you know, number of speakers.
Speaker 7: They kept a turn signal stock which they took out
Speaker 7: of the Model three when they refresh that, and Tesla
Speaker 7: owners didn't particularly care for that, you know that. I mean,
Speaker 7: that's the sort of level of of you know, lack
Speaker 7: of newness that actually.
Speaker 3: So it's it's pretty it's pretty minor stuff. So you
Speaker 3: don't seem to expect necessarily that that refresh is going
Speaker 3: to make an enormous difference. But tell us what you're
Speaker 3: most looking for tomorrow in these numbers and in the
Speaker 3: call that follows.
Speaker 7: Yeah, I mean, I think I agree with Dana that
Speaker 7: the outlook is going to be what's most important. But
Speaker 7: I also think that it will be interesting to see,
Speaker 7: you know, just how much of a of a you know,
Speaker 7: hit they potentially took in the fourth quarter, they did
Speaker 7: deliver more evs than in any quarter than they ever have,
Speaker 7: but they really pulled out all the stops to get there.
Speaker 7: So you know, they did you know, big discounts, they
Speaker 7: had you know cut rate loan and lease offers, they
Speaker 7: had you know, free charging deals, and so you know
Speaker 7: how much did they sort of need to give away
Speaker 7: in terms of you know, profitability to get a result
Speaker 7: that honestly was a bit disappointing even for for Tesla.
Speaker 7: Think they you know, guided to this idea that they
Speaker 7: would be able to grow for the year, and as
Speaker 7: Dana mentioned, they actually ended up even despite all of
Speaker 7: those you know, promotions and efforts, actually having a down
Speaker 7: year for the first time in more than a decade.
Speaker 3: Craig, not to belabor the point, but just give us,
Speaker 3: give our listeners a cent. So, when margins were at
Speaker 3: their highest and just spectacular for Tesla, a standout in
Speaker 3: the auto industry, what exactly were they and where are
Speaker 3: they now? What do folks expect for the fourth quarter?
Speaker 7: Yeah, I mean during the pandemic, I think we saw,
Speaker 7: you know, across the industry this huge run up in margins,
Speaker 7: and so you know, we saw for everybody you know,
Speaker 7: a big you know bump in terms of you know,
Speaker 7: they had plenty of demand but not enough supply. And
Speaker 7: so for for Tesla, we were seeing you know, more
Speaker 7: than twenty percent margins on a quarterly basis of you
Speaker 7: know for some time, and that was as sort of
Speaker 7: as good as it gets aside from you know, a
Speaker 7: brand like a Ferrari, right, and so we've seen now
Speaker 7: that come back down into you know, into the double
Speaker 7: digits still, but in terms of having profit margins more
Speaker 7: in line with what you would expect to see from
Speaker 7: other carmakers you know, in the past, at that margin
Speaker 7: used to be much better than their Detroit competitors.
Speaker 3: You know, Max. This company is and I'm not saying
Speaker 3: this just because we're doing this podcast, you know, but
Speaker 3: it really is one of the most fascinating stocks out
Speaker 3: there right now, and fascinating companies right now, because the
Speaker 3: stock is still even after a recent selloff, up like crazy.
Speaker 3: It's up more than fifty percent since Trump was elected.
Speaker 3: But the sales numbers, as these guys are saying, are
Speaker 3: just margins are shrinking. And there's this growing sense out
Speaker 3: there that the more Elon gets involved in politics, the
Speaker 3: more he's alienating a big chunk of his potential customers. So,
Speaker 3: you know, unless this dream and this vision of the
Speaker 3: robotaxi and the AI future comes to pass, I don't
Speaker 3: know that the math gets tricky.
Speaker 2: So like with Tesla, and I think this is true
Speaker 2: about basically all of Musk's companies. You have kind of
Speaker 2: like the business and the story and at times they've
Speaker 2: been kind of pointing in the same direction, and at
Speaker 2: times they've kind of diverged over the course of the
Speaker 2: company's life. And you know, since we've been doing this
Speaker 2: podcast for like two years, almost the business of Tesla
Speaker 2: has been kind of the same.
Speaker 3: You have an.
Speaker 2: Aging product line that people are not that excited about.
Speaker 2: Craig mentioned the refresh of the Model three, which I
Speaker 2: don't know if we've actually ever mentioned that on this podcast.
Speaker 2: Maybe we have and I've just forgotten it. But like,
Speaker 2: they went and refreshed the Model three, and it doesn't
Speaker 2: seem to have made a huge difference, or if it
Speaker 2: did make a difference, it was you know, helping from
Speaker 2: a place of weakness. The growth story that you're hitting
Speaker 2: on the AI robotaxi. Somehow Trump's gonna do something amazing.
Speaker 2: He's going to bring the good vibes back or whatever.
Speaker 2: He has a lot of ways to go on the
Speaker 2: Ernie's call to do that, and I think he will try. Right,
Speaker 2: He's going to try to talk about robotaxis and the
Speaker 2: potential for the regulatory environment to change. The problem is,
Speaker 2: of course, you need an actual working robotaxi to be
Speaker 2: able to take advantage of a favorable regulatory environment, which
Speaker 2: is not clear they have. And then the other problem
Speaker 2: is there are sort of headwinds or whatever you want
Speaker 2: to call it, you know, sort of blowing in the
Speaker 2: face of this story. One of them is that we've
Speaker 2: seen a sudden kind of correction in AI, so like
Speaker 2: we have investors reacting to the release of this Chinese
Speaker 2: large language model Deep Seek and suddenly devaluing a bunch
Speaker 2: of AI stocks. That potentially hurts, you know, the AI
Speaker 2: story that Elon Musk is going to try to tell.
Speaker 2: And the other thing is these regulatory credits, which has
Speaker 2: been a big source of Tesla's profit, as well as
Speaker 2: the tax subsidies. Trump in an executive order has basically
Speaker 2: said he's gonna get He's gonna get rid of these
Speaker 2: or at least begin considering getting rid of these which
Speaker 2: arguably would hurt other EV companies more than it would
Speaker 2: hurt Tesla, but it will also hurt Tesla.
Speaker 3: I noticed that, I mean Tesla when the deep Seek
Speaker 3: news came out yesterday and much of the tech complex
Speaker 3: absolutely collapse. I mean in Nvidia, you know fell I
Speaker 3: don't know fifteen percent or something like that. Tesla didn't
Speaker 3: move that much. But it does strike me that if
Speaker 3: Deep Seek was something of China spot Nick moment in
Speaker 3: terms of AI, there could be a potential warning sign
Speaker 3: there for Tesla and its plans going forward.
Speaker 7: Yeah, I think that's right, and I do think that
Speaker 7: Tesla did sort of take it on the chin. It
Speaker 7: was certainly no Navidia in terms of how much of
Speaker 7: a hit they took yesterday, But they too, you know,
Speaker 7: did have a rough day in the market, along with
Speaker 7: a lot of other companies. I do think that, you know,
Speaker 7: to Max's point, you know, we've also just generally seen
Speaker 7: challenges that companies that have gotten much further in actually
Speaker 7: commercializing robotaxis. We've seen a major player in that field
Speaker 7: already fall by the wayside, right and GM's you know, Cruse,
Speaker 7: and today they're out with their earnings and sort of
Speaker 7: beating their chests about the fact that they're going to
Speaker 7: lose a whole heck of a lot less money on
Speaker 7: that business that they've decided to just fold in into
Speaker 7: the car company. They're happy about that. So I think
Speaker 7: we've also seen, you know, companies that didn't get so
Speaker 7: far as Cruise fold I'm thinking rg AI, which Volkswagen
Speaker 7: and Ford acquired. We've seen some people start to commercialize
Speaker 7: the robotaxi business, but nobody's making any money, so it
Speaker 7: remains to be seen how anybody's going to actually earn
Speaker 7: anything here.
Speaker 1: Yeah, I think one of the big questions that investors
Speaker 1: are hopefully going to ask is, you know, the Trump
Speaker 1: administration has alluded to this idea that they're going to
Speaker 1: have a federal framework for AVE, so rather than this
Speaker 1: patchwork of state regulations, there could be sort of a
Speaker 1: federal framework that would make it easier for Elon to
Speaker 1: get his robotaxi approved. So if anyone asks Elon about that,
Speaker 1: I mean he could say, oh, yeah, like I was
Speaker 1: just talking to Emil Michael and blah blah blah. I mean,
Speaker 1: he is part of the govern now, and there's a
Speaker 1: reason why he donated so many millions of dollars to Trump.
Speaker 1: There are things on his ask list, and so av
Speaker 1: regulation or lack thereof is one of them, and so
Speaker 1: I think that's going to be a big part of
Speaker 1: the call tomorrow as well.
Speaker 2: One thing, aren't they supposed to have an affordable car
Speaker 2: like now, Craig, weren't we promised to twenty five thousand
Speaker 2: dollars car? Like shouldn't this whole podcast just be like,
Speaker 2: when's the twenty five thousand dollars car coming?
Speaker 7: My best guess to that is is it's never coming.
Speaker 7: And the only way I could see, you know, some
Speaker 7: potential for them actually making good on that is actually
Speaker 7: sticking a steering wheel in that cyber cap that they
Speaker 7: showed a few months back and selling it as a
Speaker 7: human driven car for some time. Maybe they could make
Speaker 7: that sort of you know, smaller sized car at least,
Speaker 7: you know, closer to that price point. But I think
Speaker 7: from what we've sort of gathered over the last year,
Speaker 7: it looks like that's been abandoned for self driving purposes.
Speaker 3: Craig. I wanted to go back, though, for a second,
Speaker 3: to the topic of how Musk's politics are alienating potentially
Speaker 3: a chunk of his customers. We have seen signs of
Speaker 3: late of resistance of sorts or to the company and
Speaker 3: people lashing out at the company and its products. And
Speaker 3: you guys also had an interview with a Tesla rival
Speaker 3: where he spoke to this topic. Tell us a little
Speaker 3: bit about that.
Speaker 7: Yeah, we met with the CEO of Polestar, which you know,
Speaker 7: of course, any company that is trying to compete with
Speaker 7: Tesla is you know, of course incentivized to talk about,
Speaker 7: you know, ways in which they could potentially benefit from
Speaker 7: any setbacks at their rival. But I did find this
Speaker 7: conversation with Michael Loschler, that the relatively new CEO of Polestar,
Speaker 7: really interesting because he's German and as we know, you know,
Speaker 7: Elon has been inserting himself in German politics to this
Speaker 7: really significant degree and throwing his weight beyond the a
Speaker 7: f D, which is, you know, a far right party
Speaker 7: in Germany with a lot of skeletons in its closet.
Speaker 7: And he said in no uncertain terms that you know,
Speaker 7: the way that Musk has inserted himself into the sort
Speaker 7: of political conversation in Germany is unacceptable and is not
Speaker 7: going to fly. And you know, I think that we've
Speaker 7: seen some indications that you know, he's he's right to
Speaker 7: say that. We've seen protesters project the emotion that Musk
Speaker 7: made at last week's Trump event that you know, people
Speaker 7: saw as a sort of Roman salute, you know, that
Speaker 7: projected onto Tesla's factory outside Berlin with the words kile Tesla.
Speaker 7: We've seen in Poland, which you know, this week is
Speaker 7: commemorating eighty years since Auschwitz. You know, a minister call
Speaker 7: for a boycott against the company. We've seen you know,
Speaker 7: vandalized cyber trucks in the Bay Area, and just this
Speaker 7: morning I saw something about, you know, a store in
Speaker 7: Seattle that was tagged with you know, references to Hitler
Speaker 7: and so.
Speaker 3: Yeah, I know that vandalized storn Seattle really jumped out.
Speaker 3: I mean it was the language that was sprayed on
Speaker 3: the window was aggressive, Nazi scum golf. Well, and that's
Speaker 3: what it says.
Speaker 2: Well, you know, we can get to this, maybe we
Speaker 2: talk about X, but like we're seeing a lot the
Speaker 2: backlash has been much much more pronounced since the quote
Speaker 2: unquote awkward gesture. You know, we've seen Reddit, lots of
Speaker 2: boards on Reddit spanning X links like and you're just
Speaker 2: seeing like it's more than just like a bumper sticker
Speaker 2: or two. You're seeing more people pushing against it. On
Speaker 2: the other hand, of course, like America's polarized country. You
Speaker 2: know a lot of Tesla sales.
Speaker 3: Or something, but it's not just America, it's the world,
Speaker 3: Yes is pointing out.
Speaker 2: It definitely seems like this is going to be bad
Speaker 2: for business in Europe. It does seem like Tesla sales
Speaker 2: have suffered from Elon Musk's political turn. I don't think
Speaker 2: we know yet just how much.
Speaker 3: Yeah, I mean, and Dan, I know I've already got
Speaker 3: you in my year saying, oh, you know that that's
Speaker 3: anecdotal evidence. You know, I won't show it to me
Speaker 3: in the macro numbers. Given that there are some people
Speaker 3: who feel so strongly about it that they're willing to
Speaker 3: go out and vandalize private property in multiple countries, is
Speaker 3: that not a window into a broader sentiment among a
Speaker 3: much larger percentage of potential Tesla customers who you are
Speaker 3: driving away.
Speaker 1: Listen, there's no question that Elon's politics are hurting sales.
Speaker 1: I think that's irrefutable, But there's no hard data that
Speaker 1: ties the two together. Because people don't buy Tesla's for
Speaker 1: any number of reasons. And like you know the person
Speaker 1: who went out and spray painted a Nazi scum on
Speaker 1: a store, Like do they own a Tesla? Were they
Speaker 1: about to buy a Tesla and then they weren't. Like
Speaker 1: a lot of this is like performative outrage, and I
Speaker 1: mean I get it, Like the outrage is real, but
Speaker 1: like it's the same thing of like everyone's saying they're
Speaker 1: going to move to Canada if Trump is reelected. These
Speaker 1: are not people who necessarily owned a car or were
Speaker 1: in the market for a car like so and like
Speaker 1: I see the same thing. Like all there's lots of
Speaker 1: people that are like, oh my god, I know I'm
Speaker 1: embarrassed to drive my Tesla and it's like, well you're
Speaker 1: still but you're still driving it. And like the biggest
Speaker 1: thing is the stock. Like if you're so upset about
Speaker 1: Elon and his and his behavior, then sell the stock.
Speaker 1: Like like the biggest example is California's pension fund is
Speaker 1: a huge shareholder of Tesla. They have sold off their
Speaker 1: position a bit, but they are still like a top holder.
Speaker 1: So I'm not like a big fan of like this
Speaker 1: performative outrage. Like if people were really upset the stock
Speaker 1: valuation would not be as high as it is, and
Speaker 1: the fact that the stock has remained so high despite
Speaker 1: all of his shenanigans over the past six months is
Speaker 1: really telling. So I think you know, you will continue
Speaker 1: to see Tesla lose market share in states like California,
Speaker 1: you will continue to see brand erosion, and like you know,
Speaker 1: surveys about the value of the brand erode. But Elon
Speaker 1: is a financial engineer, and as long as that stock
Speaker 1: price stays hi, he is going to be fine. And
Speaker 1: like no analyst on Wall Street is calling out this.
Speaker 3: No, no, Dana. That's a good point. But I will
Speaker 3: I will note that in speaking with Esha Day, our
Speaker 3: Tesla stock reporter this morning, she did say to me
Speaker 3: that she and her conversations with analysts that they at
Speaker 3: least they are bringing it up more with her than
Speaker 3: they ever have before in the past. Perhaps not to
Speaker 3: the point indeed of penning it into notes, but there
Speaker 3: at least it's something that can.
Speaker 1: Because they're afraid. So if you, if you really care,
Speaker 1: then put it in a.
Speaker 3: Note, put it in Wall Street, put it in a note.
Speaker 3: Otherwise we don't want to hear about it.
Speaker 2: Max tell Us Bingo about being I mean, you know,
Speaker 2: the best time of the year. We have huge news
Speaker 2: here in elin Klan tell us Bloomberg Terminal subscribers. I'm
Speaker 2: sure that most of our listeners already subscribe to the
Speaker 2: Bloomberg Terminal can now play Bingo on their terminal and
Speaker 2: it's interactive.
Speaker 6: You have there's a leaderboard. The card will change. We
Speaker 6: are very Dana and I are very excited about there.
Speaker 3: There's a leaderboard wayman, so everyone's not getting the same
Speaker 3: card anymore.
Speaker 6: You got a different car gives its shuffled.
Speaker 1: We have we have, we have, we have iterated our
Speaker 1: product and it is soft launch.
Speaker 6: This is all human labor as far as I know.
Speaker 6: But but we are very excited.
Speaker 3: About it and to you by deep seek.
Speaker 2: I do think that like this is really just from
Speaker 2: a pure Bingo perspective, leaving out politics or money. Just
Speaker 2: like the question of how trumpy does this earnings call
Speaker 2: get to me is like it will be interesting. We've
Speaker 2: got a few trumpy categories on the Bingo cards. Some
Speaker 2: i'd say some reaches. First Buddy Greenland are both potential squares.
Speaker 3: All right, So you like First Buddy as a Bingo
Speaker 3: as a Bingo square. You also like Greenland Fun Dana,
Speaker 3: what are your favorite squares out there?
Speaker 6: Oh?
Speaker 1: Deep Seek, Come on, this is gonna be all about
Speaker 1: I mean, I'm waiting for you Deep China questions, Deep Seek,
Speaker 1: cybercab Tariffs. Let's go Geo, I want, I want full
Speaker 1: on geopolitical Elon.
Speaker 3: You all can still download the card, and this is
Speaker 3: for those who are not Bloomberg terminal subscribers. That's small
Speaker 3: universe out there. You can download it at Bloomberg dot
Speaker 3: com backslash Elon Inc. And play with everyone here.
Speaker 6: The terminal handle b NNGO.
Speaker 2: Go.
Speaker 3: By the way, no I b n g O. Isn't
Speaker 3: that what I said? I'm just just for emphasis, right,
Speaker 3: Craig Trudell Dan out. We say goodbye to you, but
Speaker 3: enjoy Bingo, enjoy the earnings, and we'll talk next week.
Speaker 6: Thank you, Thanks much.
Speaker 3: Okay, Max and I are now joined by shred Ar Nadaijan,
Speaker 3: one of our crack Wall Street reporters. Here, Shri, Hello,
Speaker 3: welcome to the show. Hello. Now listen, Max. Shre's got
Speaker 3: this story that he likes to periodically through out there
Speaker 3: that I just want to just debunk from the get go.
Speaker 3: He alleges that at some point in early on his career,
Speaker 3: I tried to fire him. That's not true, because had
Speaker 3: I tried to fire him, he wouldn't be here today.
Speaker 3: But Shre is a non mitigated superstar. And that's why
Speaker 3: we have used.
Speaker 6: To believe this story because it's funny.
Speaker 3: True, it is not, it's bold, all right, So Shre,
Speaker 3: We're going to talk about Musk and his bankers and
Speaker 3: his acquisition of Twitter for our listeners out there who've
Speaker 3: forgotten a bit about this, which may be a number
Speaker 3: of them. Not they haven't certainly haven't forgotten about Twitter
Speaker 3: or X, but they've forgotten about, perhaps about the way
Speaker 3: the deal went down. Let's go back to the beginning
Speaker 3: and remind them the way, remind him about how this
Speaker 3: deal was financed.
Speaker 4: So we're in twenty twenty five. You want to go
Speaker 4: back to twenty twenty two, I'll take you further back.
Speaker 4: I'll take you back to twenty ten. That's the first
Speaker 4: time Elon Musk ever tweeted on Twitter. Twenty twenty two.
Speaker 4: Elon picks up this crusade of Twitter is not doing
Speaker 4: enough for free speech and what starts off or at
Speaker 4: least looks like and sounds like a joke. Idea of
Speaker 4: him wanting to buy Twitter, wanting to pull his user
Speaker 4: and wanting to see if he could take over the
Speaker 4: platform actually becomes something serious. Management is rattled by it.
Speaker 4: They even offer him a board seat. But soon things
Speaker 4: are scalid and he just straight up says I want
Speaker 4: to buy Twitter. Comes in with a pretty premium on
Speaker 4: what was then a public company, so forces Twitter management
Speaker 4: and the board to consider his offer pretty seriously. All
Speaker 4: in that was about forty four billion dollars and after
Speaker 4: a little bit of push and pull, I think at
Speaker 4: the end of the day, Twitter, advised by Goldman Sachs,
Speaker 4: JP Morgan, two of the premier investment banks, who have
Speaker 4: to do their duty and do tell the management that
Speaker 4: this is a pretty good deal, like the man or not.
Speaker 4: You can't say no to this because your shareholders will
Speaker 4: be upset, and they approve the deal. That sounds simple enough.
Speaker 4: Now we should move on to the chapter where Elon
Speaker 4: owns Twitter. But with everything Elon thinks are not quite
Speaker 4: that's simple. Two months later, he tries to find a
Speaker 4: creative way to get out of the deal. However, the
Speaker 4: courts force him to go ahead with that deal. And
Speaker 4: so he does front up the money.
Speaker 3: That forty four billion, which comes from both a group
Speaker 3: of equity investors who put up money to buy a
Speaker 3: stake beside him, and also these Wall Street bangs.
Speaker 4: Correct cash from Elon margin loans extended next to Tesla
Speaker 4: stock collateral, a group of equity investors that includes people
Speaker 4: like everyone from Larry Ellison's to Prince Alwalids. So you
Speaker 4: have an eclectic mix there backing this deal, Mark and
Speaker 4: recent sequoia. So all of these players who put in
Speaker 4: some of the equity city.
Speaker 3: I believe right that. I'm not sure that's right.
Speaker 6: He was in there.
Speaker 3: It was a.
Speaker 6: Colectic It wasn't czy.
Speaker 3: A part of the mix is.
Speaker 4: Cz Yeah, you know, yes, right, So that was right,
Speaker 4: eclectic mix of investors. So you have a situation where
Speaker 4: when you still need about thirteen billion dollars of debt.
Speaker 3: Thirteen right, So he's picked up with so it's a
Speaker 3: forty four billion dollar purchase. They've come up with thirty
Speaker 3: some odd in cash money they need financing of about
Speaker 3: thirteen billion.
Speaker 4: And thirteen billion on a company like Twitter, which if
Speaker 4: you go back to twenty twenty one, look at the
Speaker 4: finale Fullier twenty twenty one. I think they were projecting
Speaker 4: EBITDAF something like a billion in Jeta.
Speaker 3: You got to help us out here.
Speaker 4: IBITDA fancy earnings metric, but it's a metric that dead
Speaker 4: investors live by. It's it's a measurement of profit, not
Speaker 4: necessarily pure profit, but it is a key metric for
Speaker 4: Wall Street investors. And by that metric, keeping on thirteen
Speaker 4: billion dollars of debt on that company is a risky,
Speaker 4: risky maneuver. And if you go back to the environment
Speaker 4: at that time, in the years leading up to that deal,
Speaker 4: and you know this very well because we've worked in
Speaker 4: so many stories about this over the years, that it's
Speaker 4: the kind of risk that banks were not in a
Speaker 4: position to take, or at least didn't want to dig
Speaker 4: because regulators were not happy with it. They didn't want
Speaker 4: to have to run around with that kind of risk.
Speaker 4: Except the X factor here, the literal X factor here
Speaker 4: is you're dealing with someone like Elon Musk. Help him
Speaker 4: out on one deal and it could pay off brilliantly
Speaker 4: on so many other transactions and financings that brings to
Speaker 4: the market.
Speaker 3: You help him come up with this money, even if
Speaker 3: you're not crazy doing the deal. You can help them
Speaker 3: come up with the money the thirteen billion dollars which
Speaker 3: you lend to him and then he's going to cut
Speaker 3: you in and other deals in the future, maybe an
Speaker 3: IPO of SpaceX SO and so forth. So the group
Speaker 3: of the banks are names like Morgan, Stanley, Bank of America, Barclays,
Speaker 3: among others. Their normal mo shre is they make a
Speaker 3: loan like this, it's a risky loan, it's called a
Speaker 3: leverage loan, and they want to get out of it.
Speaker 3: They want to sell these godforsaken loans, or at least
Speaker 3: the vast bulk of them. Two clients are theirs. They
Speaker 3: don't want to get stuck with it on their books.
Speaker 3: The financiers who are just for a second, who are
Speaker 3: typically those kind of buyers who would buy those loans
Speaker 3: from banks.
Speaker 4: Think of large institutional investors, Think of people who are
Speaker 4: big in credit markets. You can go from a Blackstone
Speaker 4: to Apolo, to Pimco to Hatch Funds. A lot of
Speaker 4: these institutions who themselves have come up with the money
Speaker 4: because pension funds and retirement funds and sovereign wealth funds
Speaker 4: have invested in them. They have this treasure trove. They
Speaker 4: can use the cash from that to buy into these
Speaker 4: deals and the deals that the banks bring into the market.
Speaker 4: So these are the kinds of people that they will
Speaker 4: approach and should have been a cell They recognized from
Speaker 4: the outset was going to be a hard sell back
Speaker 4: in twenty back in twenty twenty two, because everything constant
Speaker 4: of Twitter's earnings was going on the same path that
Speaker 4: it was at. This was a difficult deal. But if
Speaker 4: you remember the noise at the time and all the
Speaker 4: changes that Elon made, all the massive staff cuts, that
Speaker 4: was chaos, and that chaos meant was advertisers were the
Speaker 4: first ones to flee. That was the lifeblood of revenue
Speaker 4: of Twitter. That's how they made a lot of their money.
Speaker 4: And when that happened, the earnings profile, the forward earnings profile,
Speaker 4: suddenly looked very shaky, and revenue did slump, earnings did slump,
Speaker 4: and that suddenly became a very very difficult ask when
Speaker 4: you go to investors and say, can you please take
Speaker 4: this dead off us.
Speaker 2: Not only that, but you had Elon Musk in the
Speaker 2: months before the deal was closed trying to get out
Speaker 2: of it and going around telling everyone that forty four
Speaker 2: billion dollars was way too much money.
Speaker 6: This thing was actually mad.
Speaker 2: Yeah, like basically doing the worst sales job ever when
Speaker 2: you're trying to unload some corporate debt, right, And so yeah,
Speaker 2: I mean it's like as soon as the deal closed,
Speaker 2: even if he hadn't told the advertisers to go f
Speaker 2: themselves as he did eventually, I think it would have
Speaker 2: been a difficult You just don't want to climb like
Speaker 2: that actually going out that making life so difficult for you.
Speaker 2: They wouldn't say that because they also know he's the
Speaker 2: man behind SpaceX and Tesla and Lincoln.
Speaker 6: You get to be the client from hell though if
Speaker 6: you are.
Speaker 2: A whale, Right, It's like it's like the guy in
Speaker 2: the casino kind of abusing all of the you know,
Speaker 2: the dealers and the person bringing the drinks or whatever,
Speaker 2: and is still being treated super well because everybody there
Speaker 2: knows that he cow.
Speaker 3: They'll put up with a lot of a lot of
Speaker 3: your bs. If you're not, they won't. And even the
Speaker 3: other thing tre that went against these bankers after this
Speaker 3: deal was cut to finance the purchase is the interest
Speaker 3: rate environment changed quite a bit. You went from a
Speaker 3: world in which interest rates across the globe and the
Speaker 3: US and other places benchmark rates were close to zero,
Speaker 3: they surge up to over five percent. So all that
Speaker 3: goes against them. They've been sitting on these things forever,
Speaker 3: nursing losses. I think some of them have booked, have
Speaker 3: written off losses on it. But again, all of a sudden,
Speaker 3: they're in action, They're in play, they're trying to sell
Speaker 3: these things. What is given them this wind at their back?
Speaker 4: Well, the noises died down around Twitter, the.
Speaker 3: Platform we like to never for do it as X.
Speaker 4: And now we have to call it X, so that
Speaker 4: not only has the noise died down around Twitter, Twitter
Speaker 4: itself has died down, and we talk only about X.
Speaker 4: It does seem to have maintained a core group of users.
Speaker 4: And we have gone through this very very busy cycle
Speaker 4: which otherwise is known as a US election cycle, which
Speaker 4: has meant that that platform has been more active and
Speaker 4: more busy than usual. That is a good time for
Speaker 4: a social media platform, and especially good time for a
Speaker 4: social media platform that's sort of news focused, right, And
Speaker 4: also a lot of the advertisers who initially fled Twitter
Speaker 4: are back on X. They are advertising on that platform.
Speaker 4: Are they there are certain Twitter has said that this is.
Speaker 3: What the bankers are telling shre.
Speaker 6: We don't really know what that means. Does it Does
Speaker 6: it mean.
Speaker 2: That like the advertisers who were there before are spending
Speaker 2: at their previous levels?
Speaker 6: I would I would guess.
Speaker 2: The answer is now, does it mean that advertisers who
Speaker 2: were like completely staying out of x because they were
Speaker 2: offended by Elon Musk or actually just didn't think Twitter
Speaker 2: was good enough business have decided, Hey, you know this
Speaker 2: guy is at the arm of Trump. Maybe it makes
Speaker 2: sense to like throw them a couple bucks and avoid
Speaker 2: getting into a Twitter war with one of the most
Speaker 2: powerful people, if not the most powerful people on the planet.
Speaker 6: Like, it's it's more the latter.
Speaker 3: If you bail, that is an improvement. Arguably, Yeah, bankers
Speaker 3: are telling you that advertisers are bad. No.
Speaker 4: But but more importantly you also have to slice and
Speaker 4: dicee that a bit. You don't have to worry about
Speaker 4: the absolute math here. I don't need a company that
Speaker 4: is worth forty four billion dollars to make this debt
Speaker 4: feeling to invest us. I just need to make sure
Speaker 4: that this company is strong in enough that your money
Speaker 4: good on the thirteen billion dollars. So from that perspective,
Speaker 4: that has been a bit of a rebound. It's the
Speaker 4: revenue of this company is certainly not what it was
Speaker 4: for fullier twenty twenty one. We're still way of that mark,
Speaker 4: is my understanding, based on our conversations with bankers and investments.
Speaker 3: It's going back up.
Speaker 4: It is improved from say, twelve months ago, from eighteen
Speaker 4: months ago. So that's a helpful sign. Add to that
Speaker 4: two very distinct factors. Not the kind of things you
Speaker 4: keep in mind when you're thinking about leverage, finance, when
Speaker 4: you're thinking about risky corporate debt, but here it matters.
Speaker 4: Elon played a key role in cheer leading Trump's return
Speaker 4: to the white.
Speaker 3: And access kind of, as Max calls it, the media
Speaker 3: arm to a certain degree of the Republican Party.
Speaker 2: I mean, the risk here, right, if you hold their
Speaker 2: debt is that Musk says, f this, I'm done. I'm
Speaker 2: worth three hundred billion dollars. I don't want to run
Speaker 2: this thing. I've been threatening bankruptcy for a long time.
Speaker 6: Forget it where bankrupt's not happen.
Speaker 5: There was a world where that year ago we were
Speaker 5: talking about world right, now is unfreaking thinkable total because
Speaker 5: for all the things that Sria is saying, for the
Speaker 5: things you're saying, this thing is maybe it's on the rebound,
Speaker 5: maybe it's not.
Speaker 2: But it's certainly useful to Elon Musk now and will
Speaker 2: be useful to Elon Musk in the foreseeable future. There's
Speaker 2: no universe where he's gonna walk away from it. And
Speaker 2: you have the fact that like every anything that's even
Speaker 2: like kind of tangentially connected to Trump or Trump vibes
Speaker 2: has seen like a fifty percent increase in its valuation
Speaker 2: or more, and so like, clearly this thing is is
Speaker 2: on the come up in terms of its value, in
Speaker 2: terms of its lasting power and so on, even if
Speaker 2: like the revenue is not there, and I don't think
Speaker 2: the revenue looks great with.
Speaker 4: The business rebounding, What is important is you don't need
Speaker 4: to sell to investors an equity investor leg dream. You
Speaker 4: don't need to say that something that's well one hundred
Speaker 4: dollars today will be one hundred back then. You just
Speaker 4: need a principle that's all that that investors care about.
Speaker 4: So from that perspective, things that are improving. From that perspective,
Speaker 4: the Trump linkage, the Trump halo is helpful. And then
Speaker 4: there's this complete wild factor here of what we now
Speaker 4: know as Xai Corp. Two years ago, that is Elon
Speaker 4: Musk's artificial intelligence startup. We have been caught in this
Speaker 4: cycle of craze in the AI world that has drawn
Speaker 4: all sorts of investors to it. Now, what has happened
Speaker 4: is Xai and x have a lot of interconnections. It
Speaker 4: has trained its models off of the data set on
Speaker 4: x use the chips and service and instead of paying
Speaker 4: money like you.
Speaker 6: Would do another intercompany border.
Speaker 4: So the barter almost in this case is x has
Speaker 4: gotten an equity stake in Xai, and like all things Ai,
Speaker 4: in a span of two years that stake that x
Speaker 4: has an Xai has become quite valuable.
Speaker 3: Reports say that Xai is that awesome man. Look.
Speaker 4: Last valuation for Xai is roughly fifty billion dollars. Now
Speaker 4: we've reported this, which gives x is excess take in
Speaker 4: Xai is about six billion dollars.
Speaker 3: So if you're a banker trying to get rid of
Speaker 3: these loans that have been stuck on your book for
Speaker 3: two years, that is something that you are saying to
Speaker 3: possible buyers of these loans. Hey, by the way, you
Speaker 3: buy this loan from me, you in park get a
Speaker 3: claim or a lean on X, which gets you a
Speaker 3: lean on the great XI.
Speaker 4: So David the optimistic banker is going around to all
Speaker 4: the investors and saying, not just improving fundamentals in the
Speaker 4: business doesn't have to go to the peak levels of
Speaker 4: where Twitter was, but X has seen its business rebound.
Speaker 4: But on top of that, what you will have a
Speaker 4: lean on that is, if you're a secure investor, if
Speaker 4: you're someone who has collateral against the money that you're
Speaker 4: lending to this company, you will have a claim on
Speaker 4: X is stick in XAI, which is worth six billion.
Speaker 4: So take whatever earnings X has, apply an eight times,
Speaker 4: nine times, ten times multiple, whatever's the going right in
Speaker 4: the market. On top of that, add the value of
Speaker 4: this stick and then see that the loan that you're
Speaker 4: putting up, what is the loan to value? Is that
Speaker 4: about fifty percent sixty percent? At that rate, it will
Speaker 4: draw in a lot of people. Again, we don't know
Speaker 4: if it's a done deal. We know there's a lot of.
Speaker 3: Have they sold any of it? Have they sold any
Speaker 3: of these loans? Yet?
Speaker 4: They sold a small piece. They went out there and
Speaker 4: sold about a billion dollars of day.
Speaker 3: Do they is their plan among these different banks to
Speaker 3: sell all thirteen billion or they I think the.
Speaker 4: Goal will be, of course, to get that. I don't
Speaker 4: think all thirteen billion gets off their balance sheet anytime soon,
Speaker 4: but you know, you start one is off, another three
Speaker 4: three and a half in the coming few weeks. It
Speaker 4: at least sets the stage for a lot more to
Speaker 4: be done.
Speaker 3: Which, by the way, mact, if that's right, that would
Speaker 3: be more or less in line with your everything in
Speaker 3: the must complexes up fifty percent now since the election.
Speaker 2: People shouldn't listen to this podcast, you know, we would
Speaker 2: we call this like months ago of the podcast.
Speaker 4: Well, I am an ardent listener of everything you said
Speaker 4: podcast or not.
Speaker 2: The other thing I'll say is like I don't think
Speaker 2: the valuation fifty billion or whatever for Xi Xai crazy
Speaker 2: given open AIS valuation, which is something you know, it
Speaker 2: was like one hundred and fifty two hundred billion dollars
Speaker 2: somewhere in that in that range. But like we are
Speaker 2: in the middle of an extremely frothy period here, we're
Speaker 2: also living through a sudden kind of re evaluation of
Speaker 2: just how much those things are worth. I mean, if
Speaker 2: deep Seek does everything that all the people are excited
Speaker 2: about it believe it's gonna do, that's gonna really hurt
Speaker 2: open AI's business. Open A is not gonna be worth
Speaker 2: as much, and frankly, x Ai probably be worth the whole.
Speaker 3: Complex has gotta has gotta be devalued quite a bit,
Speaker 3: which is what we saw in the stock market yesterday.
Speaker 3: I mean, you could argue obviously ultimately really good for
Speaker 3: the broader economy and really good if you can suddenly
Speaker 3: access this technology deep That.
Speaker 2: Said, like in certain ways, Xai is a little bit
Speaker 2: like deep Seek in the sense that this is something
Speaker 2: that Elon kind of slapped together.
Speaker 6: Remember like when this was launching, he had like, you know,
Speaker 6: it seemed like a handle of engineers.
Speaker 3: Audio clips of uh, you know react.
Speaker 2: In a matter of months, he he did manage to
Speaker 2: build something that like, is I don't know, is it
Speaker 2: as good as chatch ebt?
Speaker 3: Probably not?
Speaker 2: Is it? Does it get pretty close to how most
Speaker 2: people use that chatbot?
Speaker 6: Yeah, probably does.
Speaker 2: And so so in that sense, like this is maybe
Speaker 2: arguably another sort of lower cost chappot that is also
Speaker 2: eating away at open Ais. You know, potential, you know,
Speaker 2: market share.
Speaker 3: Before we let you go, just to ask you, because
Speaker 3: you're a star banking reporter for US here, are you
Speaker 3: ready to bank on X? Are you gonna do your
Speaker 3: Are you gonna?
Speaker 2: Because just made a face. I almost don't even know
Speaker 2: how to It.
Speaker 3: Seems like.
Speaker 6: I'm not even gonna deign to respond to that question.
Speaker 3: Max tell us, tell us about the news today.
Speaker 2: The news is that X has a banking partner X,
Speaker 2: the Everything app, which you know again from the jump,
Speaker 2: basically with the take over, Musk has said he wants
Speaker 2: this to be basically like a we chat, so there
Speaker 2: would be banking on this, there be all sorts of things.
Speaker 2: X has some sort of partnership with Visa that is
Speaker 2: going to allow you to at least maybe send money
Speaker 2: on X. Finally, after two years, everyone's been collamoring for this.
Speaker 2: I mean, I actually don't think anyone has, but of
Speaker 2: course except for Elon Musk, because he sees this as
Speaker 2: a potential way to expand the utility of this app.
Speaker 4: And all I would say is, don't dismiss it offhand,
Speaker 4: because for a while, the chatter and the talk in
Speaker 4: the banking sector, in the banking world, the Jamie Diamonds
Speaker 4: of the world have talked about this idea, the specter
Speaker 4: of tech companies with hundreds of millions of customers and
Speaker 4: whilst amount of resources at their disposal, having the ability
Speaker 4: to create a competitive mode where they can actually compete
Speaker 4: against banks. They have the technology, they have the platform,
Speaker 4: they have the users, and find a banking partner and
Speaker 4: suddenly you can have an Apple credit card, you can
Speaker 4: have a fintech that sits inside Walmart, and you can
Speaker 4: have X Money where you are, you know, zipping money
Speaker 4: back and forth between users on that social media platform.
Speaker 4: So it certainly has value and potential. Now can Elon
Speaker 4: drive up the hype and the hoopla around it to
Speaker 4: convince people to actually partake And the answer is knowing
Speaker 4: Elon and knowing his legions followers. It's quite possible that happens,
Speaker 4: and if that takes off, that will be another crucial
Speaker 4: leg to the X story that will make it more
Speaker 4: appealing to invest These loans.
Speaker 3: Aren't worth ninety ninety five. You're saying these loans are
Speaker 3: worth one hundred and ten cents onund the hour. That's
Speaker 3: what you're telling me.
Speaker 2: Can I just say, first of all, by now I'm
Speaker 2: saying this just purely as a long time Twitter user,
Speaker 2: someone who's been on this thing forever. No One, no
Speaker 2: one wants to trust this thing with their money, Like
Speaker 2: I barely trust it with my like bad jokes and
Speaker 2: and and that has been true before and after Elon
Speaker 2: Musk bought a bought it. I mean, there's some universe, right,
Speaker 2: the Elon Musk is a great market or whatever. Maybe
Speaker 2: he somehow convinces people, but you're starting from a very
Speaker 2: poor base, which is this is not an app that
Speaker 2: is like broadly trusted with anything other than to entertain.
Speaker 3: Oh no, And that is a good point, and we
Speaker 3: will end on that. The only thing I'll say, though,
Speaker 3: because I don't want to. I don't want Tree to
Speaker 3: leave here totally dispirited. Is his point on not dismissing
Speaker 3: something that Musk has come up with. I think it's fair.
Speaker 3: We've learned the hard way not to out of hand
Speaker 3: dismiss anything he dials up.
Speaker 6: That's true.
Speaker 2: Yeah, And I feel like we actually have all along
Speaker 2: been been articulating on this podcast saying that you know,
Speaker 2: this X thing, there are ways that it can make.
Speaker 3: The money back.
Speaker 6: We've been talking about this AI thing for like a year.
Speaker 4: I'm glad we all end an agreement.
Speaker 3: I don't know about that tree. Thanks for joining us.
Speaker 3: Thank you, Max Greator is always pleasure to be here.
Speaker 3: This episode was produced by Stacy Wang and Masa Rakas
Speaker 3: is our editor, and Rayhan Harmansi, our senior editor. The
Speaker 3: idea for this very show also came from Rayhan. Blake
Speaker 3: Maples handles engineering, and Dave Purcell factchecks. Our supervising producer
Speaker 3: is Magnus Henrickson. The elon In theme is written and
Speaker 3: performed by Taka Yasuzawa and Alex Sugiura. Brendan Francis Newnham
Speaker 3: is our executive producer, and Sage Bauman is the head
Speaker 3: of Bloomberg Podcasts. A big thanks to our supporters Joe
Speaker 3: Weber and Bradstone. I'm David Papadopolis. If you have a minute,
Speaker 3: rate and review our show, it'll help other listeners find us.
Speaker 3: See you next week.